System for maintaining account valuation of digital currency accounts

ABSTRACT

A digital currency account stabilization system for maintaining valuation of a digital currency account balance against a reference currency. The digital currency account balance is maintained in a currency account and has an initial value. Hedging positions are opened to maintain the valuation of the currency account at the initial value. When the valuation of the digital currency fluctuates, digital currency is added or deducted from the currency account to maintain the initial value.

TECHNICAL FIELD

The present disclosure relates generally to digital currency managementsystems. More particularly, the present disclosure relates to a systemthat provides valuation stability to a holder of digitalcurrency—transparent to the user—while allowing transactional use of thecurrency by the user.

BACKGROUND

Currencies have existed for thousands of years. As a means ofsimplifying trade, moving beyond subsistence, and allowing bankingsystems to be created, governments create currency as the officialcurrency for use within their country. In many cases, it is necessaryfor the currency to be used beyond the borders of its home country. Inparticular, international trade between entities in different countriesoften takes place using the currency of one of the countries, inaccordance with the known valuation of that currency respect to thecurrency of the other country.

Perhaps out of a desire to avoid control of monetary transactions byindividual governments in an increasingly international environment, andperhaps out of a desire to meet the sophistication of moderntransactions with an equally sophisticated monetary instrument, socalled “digital currencies” have arisen. While there is some debateregarding terminology among the media and banking officials, digitalcurrency is a digital form of virtual currency. A further example of adigital currency is a cryptocurrency, which uses cryptographicprinciples for authenticating transactions.

Bitcoin was the first cryptocurrency created in 2009. Bitcoin wascreated in the context of a distributed, decentralized system. Itsmonetary unit—also called “Bitcoin”—exists only by virtue of a ledgermaintained by numerous entities on a worldwide computer network, knownas a block chain transaction ledger. All transactions involving Bitcoinare accounted for on the block chain. Access to one's Bitcoin isprovided by possession of two keys: a public key, which is tantamount toan account number, and a private key. Software is often used tofacilitate transactions by keeping these keys conveniently available forthe Bitcoin user (such as on their personal computer, smartphone or thelike) in what is sometimes called a “wallet”. Since Bitcoin wasintroduced, many other digital currencies have been created with varyingsuccess.

The value of any currency is often measured against other currencies.That is, the value of a currency is commonly defined by its ability tobuy another currency. Values of currencies fluctuate due to a variety offactors. Because of its newness and since trust, usage, and acceptanceof digital currency is constantly evolving, its value can fluctuatewildly.

Currency value fluctuation can be both desirable and undesirable.Clearly, some people value stability, as they want to know that they canrely on its buying power for purchasing goods and services. Just asinvestors often do by trading traditional currencies on money markets,profit can be made by shrewd investors when the value of digitalcurrencies fluctuate. Accordingly, some investors may buy digitalcurrencies on speculation, hoping the gain through large increases invalue. Other investors position themselves to profit when the relativevalue of the digital currency decreases.

Clearly, however, the growth and success of a currency depends more uponits acceptance by consumers than by investors. Volatility is asignificant barrier for consumer adoption of digital currencies.Reduction of the risk to consumers due to volatility, is thereforecritical to the success of digital currencies.

Also, with the decentralization of many financial markets, thepossibility is arising for a currency system that seeks to provide thestability desired by consumers, and serves the investment potentialdesired by others.

Various systems have been devised that facilitate transactions ofdigital currency, or for optimizing trades on futures markets. Whilethese units may be suitable for the particular purpose employed, or forgeneral use, they would not be as suitable for the purposes of thepresent invention as disclosed hereafter.

BRIEF SUMMARY

It is an aspect of an example embodiment of the present disclosure toprovide a system for maintaining digital currency, where the value of adigital currency account is maintained despite market fluctuations inthe value of a digital currency.

It is another aspect of an example embodiment of the present disclosureto provide a system that allows an entity to take the role ofstabilizing entity for the digital currency account and thereby receivegains and assume losses in valuation from that digital currency account.

It is yet another aspect of an example embodiment of the presentdisclosure to provide a system that allows the currency account beingstabilized to also be used for transactions. Accordingly, transactionson the digital currency account are communicated to the stabilizingentity so that hedging positions can be purchase or closed out inaccordance with the change in account balance.

The disclosure describes a digital currency account stabilization systemfor maintaining valuation of a digital currency account balance againsta reference currency. The digital currency account balance is maintainedin a currency account and has an initial value. Hedging positions areopened to maintain the valuation of the currency account at the initialvalue. When the valuation of the digital currency fluctuates, digitalcurrency is added or deducted from the currency account to maintain theinitial value.

To the accomplishment of the above, this disclosure may be embodied inthe form illustrated in the accompanying drawings. Attention is calledto the fact, however, that the drawings are illustrative only.Variations are contemplated as being part of the disclosure.

BRIEF DESCRIPTION OF THE DRAWINGS

In the drawings, like elements are depicted by like reference numerals.The drawings are briefly described as follows.

FIG. 1 is a block diagram, illustrating functional interconnection ofvarious components according to an example embodiment of the presentdisclosure.

FIG. 2 is a flow diagram, illustrating steps followed in an exampleembodiment of the present disclosure employing an exchange.

FIG. 3 is a flow diagram, illustrating steps followed in another exampleembodiment of the present disclosure, employing a stabilizing account.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS

FIG. 1 illustrates a computer network 100, which may be used inaccordance with the principles illustrated in the present disclosure. Inparticular, the network 100 employs the Internet 102 for interconnectingvarious components including a first user 110A, a second user 110B, andan nth user 110N. In addition, a digital currency system 104 isaccessible by the users 110A, 110B, 110N through the Internet 102. Thedigital currency system 104 may be a single entity, or it may benumerous entities that create the digital currency system 104 through adistributed, decentralized arrangement. For example, digital currencymay be used to monetary complete transactions using a smartphone 106linked to a payment server 108, may be transferred to other users 110N,and may be maintained in cryptographic form indefinitely.

The digital currency system 104 includes a means for maintaining digitalcurrency accounts, which may be called an “address”, and herein aresimply referred to as “currency accounts”. The account includes a firstaccount, owned by the first user 110A. Each account has an accountbalance, measured in digital currency and thus is a digital currencybalance. Each currency account also may have identifying and securitydata, employed to ensure that attempted transactions involving thecurrency account are indeed authorized by the account owner.

The digital currency system has a digital currency unit, which is themonetary instrument maintained by the system. The digital currency unithas a value or valuation, which is determined in relation to a referencecurrency. For example, the reference currency may be U.S. dollars. Then,at a given time, one digital currency unit might have a value of, forexample, 400 U.S. dollars ($400.00).

In accordance with the principles of the present disclosure, the systemmay be configured to stabilize the value of the digital currency in oneor more of the user accounts, such that the digital currency balance ischanged by another entity to maintain the value with respect to thereference currency.

For example, the second user 110B may possess a stabilizing account. Thestabilizing account may transfer digital currency into or out of one ormore currency accounts under certain conditions. The stabilizing accountmonitors the digital currency balance in associated currency accountsand the value of that balance according to the reference currency.Further in accordance with the principles of the present disclosure, thestabilizing account may transfer digital currency into the currencyaccount to compensate for a loss in value of that currency account, andmay transfer digital currency out of the currency account equivalent toa gain in value in that currency account.

What follows is a non limiting example of valuation and stabilizationfollowing principles of the present disclosure to maintain valuation ofthe currency account: Suppose the account balance is initially fourunits of digital currency, with each unit valued at $10.00, for a totalof $40.00. If the value of the digital currency drops to $5.00 per unit,four more units of digital currency will be added to bring the accountbalance to eight units for a total valuation of the digital currency inthe currency account of $40.00. On the other hand, if the value of thedigital currency increases to $20.00 per unit, two units of digitalcurrency will be deducted to bring the account balance to two units fora total value of still $40.00.

Referring now to FIG. 2, an example is provided that illustrates thesimultaneous use and stabilization of digital currency in a currencyaccount 200. For simplification in the example illustrated, the role ofthe stabilizing account is taken generally by an exchange upon whichhedge positions can be purchased and sold. Note that this role can beassumed by one or more entities, centralized or decentralized, public orprivate.

In particular, initially a digital currency balance is established in adigital currency account 202, perhaps at the point in which the accountis initially funded. Then a hedge position is opened on an exchangebased on a portion of the balance 204. Note that hedge position can bemade to protect/stabilize the entire balance, a portion of the balance,and such can be allocated among more than one entity. The accountbalance may be used as collateral to allow the hedge position to beopened on an electronic exchange. The general principles of hedging, ordelta hedging themselves are well known to financial professionals andthus are beyond the scope of this discussion.

At some point during maintenance of the currency account, its owner maymake a transaction that changes the account balance 206 to a new accountbalance. Such transactions may include, but are not limited to, addingadditional digital currency, transferring digital currency to anotheraccount, purchasing goods or services, purchasing another currency, etc.

In response to the change in account balance, the hedging position onthe exchange is adjusted 208. In particular, if the balance isincreased, additional units of a hedging instrument may be purchased. Ifthe account balance is decreased, an appropriate portion of the hedgingpositions may be closed out.

As previously discussed, the digital currency will likely fluctuate invalue with regard to the reference currency. Accordingly, the system maydetermine whether a gain or loss 210 has occurred with regard to thevalue in the currency account. If a loss has occurred, digital currencymay be added to the account balance 212. If a gain has occurred, adeduction may be made from the account balance 214. Note that asdescribed herein, the term “exchange” may be interpreted very loosely.As financial instruments are being traded in an increasinglydecentralized and more peer-to-peer manner, the notion of whatconstitutes an exchange may deconstruct to be more akin to a differenttype of account holder or user on the system. In particular, with theuse of digital currencies and as financial markets become increasinglydecentralized, it is possible to make transactions and move fundsbetween accounts nearly instantly. In addition, where securitiestransactions required a settlement period of days, transactions can nowbe settled and finalized between bank accounts and trading accounts inminutes or less. In addition, this monitoring and account adjustment canoccur at such frequency and at such small increments of value changethat to the user, the account always seems to maintain its value.

Accordingly, FIG. 3 illustrates a further example of interplay betweenthe stabilizing account and the currency account for the sake of allowsimultaneous use by the currency account and stabilization thereof. Inparticular, an event occurs, such as initial funding, which results inthe establishment of a currency balance of digital currency in a digitalcurrency account 302, in which the digital currency has an initial value(with respect to the reference currency).

Next, the currency account is linked to one or more stabilizingaccounts, which establish a hedging position in accordance with thecurrency balance in the currency account 304. Note that similarly, astabilizing account can be linked to one or more currency accounts. Alsonote that the extent to which the stabilizing account actually opens theposition on an exchange, or underwrites or shares the risk of digitalcurrency volatility with other stabilizing accounts/entities, can be thesubject of innumerable possibilities. Also the extent and type ofhedging position or futures contract opened in accordance with theaccount balance is one that would predictably be sufficient to maintainthat account balance in the face of reasonable volatility.

Next, during the customary usage of the digital currency account, atransaction is made that changes the balance of digital currency in saidcurrency account 306. This change is communicated to the associatedstabilizing account (or accounts) and adjustment is made to its hedgingposition 308. In addition, proceeds are received from the exchange bythe stabilizing account from closed or partially closed positions, frommaturing futures contracts, forward contracts, options, swaps, or otherassets and derivatives that create the hedging position. Any requireddeficits owed to the exchange is also paid by the stabilizing account.

The stabilizing account continues to monitor the currency account aswell as the value of the digital currency contained therein anddetermines whether there is a gain or loss 310 from the initial value.When there is a loss in value of the digital currency, the stabilizingaccount adds to the currency account balance 312 to compensate for theloss in value. When there is a gain in the value of the digitalcurrency, the stabilizing account deducts from the currency account torestore the currency account to its initial value 314. Note that in theexample provided in FIG. 3, the use of exchanges, hedging positions, andthe like are all outside the view of the user that owns the currencyaccount. The stabilizing account does all the work necessary tocover/hedge the risk of volatility, and simply adds and deducts from thecurrency account. To the user that owns the currency account, thedigital currency they own maintains a consistent value with respect tothe reference currency.

In conclusion, herein is presented a system for maintaining stablevaluation within an digital currency account. The invention isillustrated by example in the drawing figures, and throughout thewritten description. It should be understood that numerous variationsare possible, while adhering to the inventive concept. Such variationsare contemplated as being a part of the present disclosure.

What is claimed is:
 1. A method of maintaining a digital currencyaccount, for stabilizing the value in a digital currency account withrespect to a reference currency, the digital currency account having anaccount balance of digital currency, and simultaneously facilitating theuse of the digital currency by an owner of digital currency account,comprising the steps of: a) creating a digital currency account, wherethe digital currency account is maintained using a digital currencysystem configured as a network comprising a plurality of decentralizedcomputing devices, wherein the digital currency system has a pluralityof digital currency units implemented using a block chain transactionledger stored on the network of decentralized computing devices, whereinthe block chain transaction ledger records all transactions using thedigital currency; b) establishing an initial value of the digitalcurrency account balance in the digital currency account with respect tothe reference currency; c) determining a gain or loss in value of thedigital currency from the initial value; d) adjusting the digitalcurrency account balance by performing one of adding digital currencywhen a loss in value is determined and deducting digital currency when again in value is determined; e) making an account transaction initiatedby the owner which changes the digital currency account balance; and f)repeating steps b through d.
 2. The method of maintaining a digitalcurrency account as recited in claim 1, wherein the step of creating adigital currency account is followed by the step of creating a hedgingposition according to the digital currency balance.
 3. The method ofmaintaining a digital currency account as recited in claim 2, whereinthe step of determining a gain or loss in value of the digital currencyis followed by the steps of: i) changing the account balance in thedigital currency account by performing an account transaction, whereinthe account transaction is transmitted to the digital currency systemand recorded to the block chain transaction ledger by the network ofdecentralized computing devices; and ii) adjusting the hedging positionin response to the change in account balance in the digital currencyaccount.
 4. The method of maintaining a digital currency account asrecited in claim 3, wherein the step of adjusting the hedging positionfurther comprises: i) communicating the account balance change to anexchange; and ii) one of: opening, closing, and partially closing atleast one item selected from the group consisting of futures contracts,forward contracts, swaps, and derivatives.
 5. The method of maintaininga digital currency account as recited in claim 3, further using astabilizing account, and wherein the step of adjusting the digitalcurrency account balance is performed by transferring digital currencybetween the stabilizing account and the currency account.
 6. The methodof maintaining a digital currency account as recited in claim 5, whereinthe steps of creating the hedging position and adjusting the hedgingposition are performed by the stabilizing account.
 7. The method ofmaintaining a digital currency account as recited in claim 1, furtherusing a stabilizing account, and wherein the step of adjusting thedigital currency account balance is performed by transferring digitalcurrency between the stabilizing account and the currency account. 8.The method of maintaining a digital currency account method as recitedin claim 7, wherein the step of creating a digital currency account isfollowed by the step of creating a hedging position by the stabilizingaccount according to the digital currency balance.
 9. The method ofmaintaining a digital currency account as recited in claim 8, whereinthe step of determining a gain or loss in value of the digital currencyis followed by the steps of: i) changing the account balance in thedigital currency account by performing an account transaction, whereinthe account transaction is transmitted to the digital currency systemand recorded to the block chain transaction ledger by the network ofdecentralized computing devices; and ii) adjusting the hedging positionby the stabilizing account in response to the change in account balancein the digital currency account.
 10. A digital currency accountstabilization method, for stabilizing valuation of currency accounts,each having an account balance of digital currency, using a stabilizingaccount, comprising the steps of: a) linking to a currency accounthaving an account balance, where the digital currency account ismaintained using a digital currency system configured as a networkcomprising a plurality of decentralized computing devices, wherein thedigital currency system has a plurality of digital currency unitsimplemented using a block chain transaction ledger stored on the networkof decentralized computing devices, wherein the block chain transactionledger records all transactions using the digital currency; b)establishing an initial value of the currency account balance in thedigital currency; c) monitoring the valuation of said currency accountaccording to the initial value; d) transferring digital currency betweenthe stabilizing account and the currency account to maintain the initialvalue of the currency account when monitoring of the currency accountshow that the valuation has increased or decreased; e) making an accounttransaction initiated by the owner which changes the digital currencyaccount balance; and f) repeating steps b through d.
 11. The digitalcurrency account stabilization method as recited in claim 10, whereinthe step of transferring digital currency further comprises addingdigital currency to the currency account when the valuation of thecurrency account has decreased and deducting digital currency from thecurrency account when the valuation of the currency account hasincreased.
 12. The digital currency account stabilization method asrecited in claim 11, wherein the step of linking to a currency accountis followed by the step of opening a hedging position according to theaccount balance of the currency account.
 13. The digital currencyaccount stabilization method as recited in claim 12, wherein the step ofmonitoring the account valuation further comprises: i) changing theaccount balance in the currency account by performing an accounttransaction, wherein the account transaction is transmitted to thedigital currency system and recorded to the block chain transactionledger by the network of decentralized computing devices; and ii)adjusting the hedging position by the stabilizing account in response tothe change in account balance in the digital currency account.
 14. Thedigital currency account stabilization method as recited in claim 13,wherein the step of adjusting the hedging position further comprises: i)communicating the account balance change of the currency account to thestabilizing account; and ii) one of: opening, closing, and partiallyclosing by the stabilizing account at least one item selected from thegroup consisting of futures contracts, forward contracts, swaps, andderivatives.